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Financial Literacy for Children: Episode 5 – What is Investing?

Team StoryWeavers|December 12, 2022, 15:08 IST|

Last time we discussed savings. After buying what we need and want, we sometimes have a little money left over. This money that we have not spent is what we can say is our savings. Today, we’re going to talk about what it means to invest our money.

Savings are important for everyone. The amount of money people save depends on different things like how much they spent that month, how much they earned, etc. 

So, what do you think people do with their savings? Do they just keep it in their bank accounts? Do they save it all for a rainy day?

Well, that money is often invested! 

(Parents can read the sections at a pace appropriate for their child and then solve the worksheet together.)

Previously on The Piggy Bank:

What are investments?

Invest (verb): To commit money in order to earn more money or other benefits in the future.

When you invest, you make your money grow. People use their savings to invest in different investment tools such as mutual funds, land, etc. The goal is to get back more money than you put in. Investing is not the same as putting your money in a piggy bank or a drawer because investment can increase the total amount of money you have. 

People invest so that they get extra money to go on trips, buy fun things, and pay big bills.

For example:

  • Saba and Arjun both save ₹20 per month. Saba stores her savings in a piggy bank, and Arjun invests his savings. 
  • At the end of the year, Saba has ₹240 (₹20 x 12 months) in her piggy bank. 
  • Because Arjun invested money, he has ₹260 (₹20 x 12 months = ₹240 + ₹20 extra) at the end of the year. 

Exercise: Ask your parents if they invest their saved money and how they plan to use their investments.

What are investment tools?

When you invest early, your money gets more time to grow. It is just like planting a tree – a tree planted 5 years ago will be bigger than a tree planted 2 years ago. 

Early investment gives your savings more time to grow. Some investment tools grow our money slowly but surely. Some investment tools grow our money very fast, but there is also a chance that the money won’t grow or might become less than it was before. Scary, right?  

Putting all your money into one type of investment can be risky. 

Risk (verb): Expose to danger, harm, or loss.

That is why people invest their money in more than one place. 

For example:

  • Saba has ₹100 to invest. She put her investments in two different investment tools and waited for five months. She put ₹50 into an investment tool that will grow her money slowly but surely and another ₹50 into an investment tool that could either grow her money quickly or even lessen it. Let’s see how her investments worked for her!
Investment tool 1 Month 1 Month 2 Month 3 Month 4
Money spent ₹50 ₹50 ₹50 ₹50
Money returned ₹50 ₹53 ₹57 ₹60
Extra money earned on the invested money ₹0 ₹3

Saba got extra ₹10 from investment tool 1. She will continue to get more money in future.

Investment tool 2 Month 1 Month 2 Month 3 Month 4
Money spent ₹50 ₹50 ₹50 ₹50
Money returned ₹50 ₹70  ₹35 ₹65
Extra money earned on the invested money ₹0 (Gained) ₹20
Money lost – ₹15 ₹15

Investment tool 2 generated extra ₹15, but this amount is different from what Saba received every month. In fact, some months, Saba lost money.

Exercise: Discuss possible reasons why Saba chose to invest in two different investment tools. Would you consider doing the same? 

<Download the worksheet now>

Note for parents: Most of this may not make much sense to your child, and that’s fine. This is just a brief outlook on a few basic words and ideas about investing. Keep revising these terms as and when the situation arises to develop their understanding of investment and how it works.

Disclaimer: This blog has been written for children between the ages of 5 to 7. The information has been presented accordingly. Parental discretion is advised.

About the Author

“Me-kha-la!” That happens at least once when she introduces herself to new people. She wholeheartedly believes in the quote by Arthur Rubinstein that says – “if you love life, life will love you back”. She is an organizational psychologist and psychometrician. She was a class teacher of 36 adorable girls for two years, grades 2 & 3, as a part of the Teach For India Fellowship. These little girls have a special place in her heart, and when she writes for children, she writes for them!

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